A Dereliction of Duty

As David Cameron did before her, Theresa May is headed north to talk about industry in the regions and its importance. Headlines talked of an “active industrial strategy”. But the warm words she uttered are in marked contrast to the reality of the May Government’s laissez-faire approach to industry in the nations and regions, as shown by the shocking silence of the Government on the threat to one important, independent, regional business.

Dee Valley Water is a successful, local company. Headquartered in the County Borough of Wrexham, it employs over 300 people and provides an essential service, supply of water, efficiently. It supports local businesses in its procurement policies and is accessible to local representatives, if problems ever arise. It supports community organisations locally. Decisions as to its future are made with the best interests of the area it serves uppermost in its decision-making process.

As a private company, it is owned by its shareholders and it is, therefore, vulnerable to takeover. This is one of the central problems that has bedevilled British industry and business since the 1980s. Any successful business appears to be vulnerable to takeover. Great British businesses such as GEC and ICI have disappeared as a result and regional institutions like Building Societies such as the Halifax, Leeds Permanent and Northern Rock, have been swallowed up by an increasingly small number of private sector institutions largely based in the City of London, divorced from the reality of regional economies. The privatisation of the utility sector, and its captive customer base, has made it especially vulnerable to businesses, often from abroad, looking to maximise shareholder return.

As water is a monopoly service and, in view of its crucial nature, its ownership is subject to the intervention of regulators. Both Ofwat, focussing on the quality of water and environmental impacts, and the Competition and Markets Authority, concentrating on commercial and competitive aspects in the market, play a role. It is their duty to safeguard the interests of the public as set out in legislation by Parliament. The UK Government, as in any case involving the public interest, has an important role to play, vital when we are dealing with a monopoly provider of an essential utility. One might expect a Government pursuing an “active” industrial strategy to take an interest in the future of an important regional institution.

Severn Trent Water has bid to take over Dee Valley Water. Severn Trent, as the name tells us, is headquartered away from the Dee Valley area and is a much larger business. It wishes to add Dee Valley to its portfolio. Why?

The water industry is on the point of change. In the name of more competition, businesses will be able to shop around for water and the providers, such as Severn Trent, are gearing up for this. The bigger providers are wanting to get bigger and to consolidate costs. We have seen in the electricity industry how this works and the limitations of the benefits for customers. Acquiring a successful water business such as Dee Valley Water will, however, enable Severn Trent to acquire more income from the people of Wrexham and Chester where, in the short term, consumer customers will have no choice but to use the local water company. Wrexham and Chester is an expanding area both residentially and in business terms and it will put Severn Trent in prime position to acquire customers from the area.

For a customer like me, I will have no choice but, from the water bills that I pay, to be part of the well from which the Chief Executive of Severn Trent draws her annual salary of £2.4 million, for the last financial year.

There are also changes in the Wales Bill which will increase the role of the Labour Welsh Government in the governance of the water industry regime in Wales. This will be the last chance for companies to act to acquire smaller water businesses in Wales whilst Labour has a more limited role.

Local employees of Dee Valley, unions and customers are highly sceptical of assurances given by Severn Trent that there will be limited job losses as a result of the takeover. Control will be taken away from the local area, massive salaries will be paid to senior executives of Severn Trent by Dee Valley customers and the views of local people are being ignored already. If Severn Trent respected the views of those people, they would go away and leave Dee Valley to continue doing a good job.

Dee Valley Water, as a company, appear to be doing all they can to remain independent. An alternative bidder, Ancala, is proposing to invest in Dee Valley Water and leave the business as a separate entity. Its bid is supported by the workforce. At a dramatic EGM, Severn Trent’s bid was frustrated by it failing to secure the necessary majority of shareholders, following recent share transfers in Dee Valley Water.

The result is that the story will reach its conclusion in court on 25 January when judges will determine whether recent share transfers will stand and Severn Trent’s takeover will be defeated.

And what of Ofwat and the Competition and Markets Authority? Despite the fact that the swallowing up of Dee Valley will lead to one less independent provider providing competition in the market, they waved Severn Trent’s bid through. There is now one fewer water company in the market place against which to place a benchmark. For consumers, this is bad news. How will the regulator measure competiveness of water companies in a market where fewer and fewer water companies compete?

In addition, there was no concern expressed for the views of workforce, customers and unions whose views, in our present system, simply appear not to matter. There is no concern at the hugely inflated salaries paid by customers of the monopoly.

Which brings us back to the Government. At a time when it speaks of decentralising and “rebalancing” our economy to the regions, the reality is that it stands aside and says nothing at all when a locally based, successful business supplying an essential utility is taken over. We should support and incentivize business closer to its customer base, linking it more closely to the communities it serves, and make it more responsive to the needs of the local economy. We should be establishing corporate structures which incentivize long-term investment rather than never-ending takeovers which end local ownership. In short, we should be doing the opposite of what Severn Tent is trying to do to Dee Valley Water, while the Government and regulators stand idly by. For as long as the Government allows essential infrastructure businesses to be less accountable and more remote from the communities they serve, we will know that any commitment to an “active industrial strategy” is rhetoric, not reality.Its Chief Executive was paid £2,433,200 as a salary for the year ending 31 March 2016. In addition, she was paid a bonus for 2015/16 of £702,142. She was also given a “long term incentive award” of £876,000 in the form of shares in the company.Its Chief Executive was paid £2,433,200 as a salary for the year ending 31 March 2016. In addition, she was paid a bonus for 2015/16 of £702,142. She was also given a “long term incentive award” of £876,000 in the form of shares in the company.Its Chief Executive was paid £2,433,200 as a salary for the year ending 31 March 2016. In addition, she was paid a bonus for 2015/16 of £702,142. She was also given a “long term incentive award” of £876,000 in the form of shares in the company.Its Chief Executive was paid £2,433,200 as a salary for the year ending 31 March 2016. In addition, she was paid a bonus for 2015/16 of £702,142. She was also given a “long term incentive award” of £876,000 in the form of shares in the company.


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